Credit Allocation Under Economic Stimulus: Evidence from China

Lin William Cong · Haoyu Gao · Jacopo Ponticelli · Xiaoguang Yang

536 citations0/0 files storedReview of Financial Studies

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Banking stability, regulation, efficiency Corporate Finance and Governance Political Influence and Corporate Strategies

Abstract

Abstract We study credit allocation across firms and its real effects during China’s economic stimulus plan of 2009–2010. We match confidential loan-level data from the nineteen largest Chinese banks with firm-level data on manufacturing firms. We document that the stimulus-driven credit expansion disproportionately favored state-owned firms and firms with a lower average product of capital, reversing the process of capital reallocation toward private firms that characterized China’s high growth before 2008. We argue that implicit government guarantees for state-connected firms become more prominent during recessions and can explain this reversal. Received August 23, 2017; editorial decision November 15, 2018 by Editor Philip Strahan.

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References

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